Global Financial System to Become More Vulnerable as Digital Revolution Accelerates

The digital revolution is accelerating, driven by innovation, competition, and the pandemic. As a result, the global financial system is poised to become even more vulnerable to cyber threats. Despite efforts to harden defenses and toughen regulations, a collective action problem persists, with stakeholders operating in silos and failing to leverage resources effectively.

The Disconnect between Stakeholders

A disconnect between the finance, national security, and diplomatic communities has hindered collaboration, exacerbating uncertainty about roles and mandates. This responsibility gap is fueled by the current geopolitical climate and high levels of mistrust, making international cooperation on cybersecurity a “need-to-have” rather than a “nice-to-have.”

Addressing the Challenge

To address this challenge, the Carnegie Endowment for International Peace recently released a report outlining an international strategy to better protect the global financial system against cyber threats. The strategy is built on four principles:

• Clarifying roles and responsibilities
• Fostering international collaboration
• Reducing fragmentation
• Protecting the international financial system as a model for other sectors

Recommendations

The report recommends that the Financial Stability Board develop a basic framework for supervising cyber risk management at financial institutions. It also recommends that governments and industry:

• Share information on threats
• Create financial computer emergency response teams (CERTs)
• Strengthen security measures

Reinforcing International Norms

Governments should make clear how they will apply international law to cyberspace and strengthen norms to protect the integrity of the financial system. The report also emphasizes the need for:

• Building capacity in cybersecurity workforce
• Expanding the financial sector’s cybersecurity capacity
• Safeguarding gains in financial inclusion

Time for International Cooperation

In a statement, Tim Maurer, director of the Cyber Policy Initiative at Carnegie Endowment, emphasized that “the time has come for the international community to come together to address this urgent and important challenge.” He noted that a well-thought-out strategy provides a blueprint for turning words into action.

Conclusion

As the digital revolution accelerates, it is imperative that governments, central banks, supervisors, industry, and other stakeholders work together to:

• Strengthen cyber resilience
• Promote international collaboration
• Protect the global financial system

The stakes are high, and inaction will only exacerbate the risks facing this critical sector. It is time for the international community to come together to address this urgent and important challenge.